The Federal Government is working to come up with a new price regime for domestic gas within three months, informed industry sources have disclosed to BusinessDay.
The move is intended to encourage gas producers who have been clamouring for incentives to produce more gas to meet power sector demand.
Domestic gas is the gas used by companies operating within the country for activities including generating electricity, fertiliser and other industrial production processes. It is different from household cooking gas, otherwise known as liquefied petroleum gas (LPG).
Users of domestic gas would have to brace up for a new price regime for gas, which would bring the local price close to par with international market rates which are significantly higher.
Currently, the price of gas in the international market is about $3 per 1,000 standard cubic feet, but in Nigeria, it ranges from 90 cents to $2 depending on the sector of the economy.
In Nigeria, there are three price regimes. For gas-based industries such as fertiliser companies, the price they pay for gas currently is 90 cents per 1,000 standard cubic feet (SCF) while power companies currently pay $1 per 1,000 cubic feet. Put against international prices, these rates are considered inadequate to encourage local gas producers to continue to produce for domestic use.
The power sector consumes about 80 per cent of locally produces gas and yet pays the lowest price.
Going by the Nigerian Gas Masterplan, the price of gas should have gone beyond the current rates. It should have been close to $3 per 1,000 standard cubic feet.
An industry operator who does not want his name disclosed, said that the power sector which consumes the highest volume of gas should be able to pay competitive prices, which would then spur producers to step up production.
Companies such as Gaslink and Shell Nigeria gas, pay as much as $2.50 per 1,000 standard cubic feet of gas, a Nigerian National Petroleum Corporation (NNPC) source told BusinessDay.
According to David Ige, group executive director Gas and Power, in the NNPC, by the time the review is concluded, it is expected that the prices paid by power sector operators and commercial companies would move up substantially, to between $1.50 cents and $2.50 cents.
Ige said the price at which gas is sold to the power sector would be based on the level of power generation.
The implication of this exercise is that the cost of gas from companies like Gaslink and Shell Nigeria Gas, to commercial companies which use natural gas to fire their production processes, would increase.
This would lead to higher production costs, which would in turn be passed on to consumers of the products which companies manufacture.
The NNPC boss said within the next three months, gas off-takers should be ready to pay more to get gas from the producers, who have been complaining that the current gas tariff is not commercially viable. Because of this, they have not been encouraged to produce more gas.
By: Olusola Bello